Taiwan will cut all assistance it had been giving to Panama, halt all cooperative projects with the country, and pull out its diplomatic staff and technical missions, Lee said.

The change in ties comes about a year after President Tsai Ing-wen (蔡英文) visited Panama in June 2016 on her first overseas state visit after taking office in May to cement ties with the country.

She attended the inaugural ceremony of the expanded Panama Canal and witnessed Taiwan's donation of 3,000 boxes of flu medicine to the country in an effort to help Panama combat a H1N1 flu epidemic.

Taiwan was responding to President Juan Carlos Varela's announcement that Panama is establishing diplomatic ties with China.

Panama's Vice President Isabel Saint Malo signed a joint communiqué with China's Foreign Minister Wang Yi on establishing diplomatic relations in which Panama stressed it would not maintain any official ties with Taiwan.

Panama also agreed to recognize that there is only one China and that Taiwan is part of it.

Panama's decision leaves Taiwan with only 20 diplomatic allies in the world, 11 of them being in Latin America and the Caribbean.

The decision was widely seen as part of China's strengthening efforts to squeeze Taiwan following Tsai's Democratic Progressive Party (DPP) administration took office on May 20, 2016, which adopts a less conciliatory attitude toward China.